Is It Legal To Set Minimum Resale Prices?

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If you’re in the business of supplying products, sometimes your customers will on-sell those products to others.

In these situations, it can be tempting to tell your customers what prices to charge their end-customers. After all, it’s often the supplier who’s developed the products being sold. Shouldn’t suppliers decide how much those products are sold for?

Unfortunately it’s not that simple, and if you’re a supplier, this is an area where you have to be careful.

The Australian Consumer Law (ACL) prevents suppliers from imposing minimum resale prices on their customers. The means suppliers aren’t allowed to dictate prices for their products when they’re sold on.

This practice is called resale price maintenance, and it’s prohibited under the ACL.

Suppliers do still have some options if they want to recommend prices to their customers. More on this below!

This article will take you through what kinds of things the ACL prevents, and some exceptions to the rules.

First of all, though, it’s important to understand what a minimum resale price can look like in Australia.

What Is Resale Price Maintenance?

Resale price maintenance refers to the act of setting a particular price for sellers to distribute goods under. Manufacturers and suppliers cannot tell sellers what price to market their items for.

They are, however, able to make suggestions. If a suggestion is made then it must be undoubtedly clear that this is only a recommendation.

Fines can be imposed if a business has been found to engage in resale price maintenance.

On the contrary, there is an exception where resale price maintenance is permitted. If there is greater public benefit for issuing a resale price, it is possible to get permission from the ACCC to set a one.

For the most part, however, resale price maintenance is not only prohibited but also frowned upon in many economies.

Example
Apple was fined €1.1 Billion for its aggressive resale price maintenance conduct by the French Competition Authority a few years ago. It was found that Apple’s control over the prices caused a reseller harm and, as a result, they were found to be in breach of fair practice.

What Is A Minimum Resale Price?

A minimum resale price is a price that indicates to your customer that they can’t sell or advertise goods below that price.

This could be presented in a bunch of different ways. For example, it could be:

a fixed number (e.g. the customer must sell the product for at least $5).
a range (e.g. the customer has to sell products for between $5 and $10).
a percentage (e.g. a product can’t be on-sold for less than 150% of the price the customer paid for it).

However this is presented, if your customer is likely to understand it as the lowest price they’re allowed to charge, it’s probably a minimum resale price.

So, now we know what a minimum resale price is, what does it mean to “impose” one?

What Does It Mean To ‘Impose’ A Minimum Resale Price?

We know suppliers can’t impose minimum resale prices, because this is ‘resale price maintenance’. But what does this look like in reality?

It can be difficult to figure out. It will depend not just on what’s in your contract, but also on what you do and say to your customers. Things like your communication with the customer and how your products are presented are very relevant.

If you’re unsure about your processes, it’s always best to speak with an experienced commercial lawyer who can talk through them with you.

To give you an idea, here are 5 common examples of resale price maintenance:

Telling a customer you won’t supply goods to them if they don’t charge above a minimum resale price.
Not supplying goods to a customer, because they didn’t agree to your minimum resale price, or they sold their goods for less than your minimum resale price.
Persuading a customer not to sell goods under a certain price (unless it’s just by a recommendation).
Asking a customer to sign an agreement that says they can’t sell goods under a certain price.
Stating a price in relation to goods you supply (e.g. a price printed on the goods), that is likely to be understood as a minimum resale price.

It’s Okay To ‘Recommend’ A Resale Price

An example of ‘resale price maintenance’ is to persuade or induce a customer not to sell goods under a certain price. But there’s an exception to this, and that’s when the supplier is only recommending a price for resale.

You can read more about setting a recommended retail price here.

Suppliers can recommend minimum resale prices to their customers. They just can’t put pressure on them to charge a set price.

Suppliers put lots of work into making sure any prices they send to customers are just recommendations, not requirements or too much ‘pressure’.

This can be a fine line to walk, but two tips to keep in mind are:

If you put a resale price on a product (or on its label or packaging), make sure the words “Recommended price” are printed before it.
If you notify a customer of a resale price, you should make it clear that the price is a recommended price only, and there is no obligation to comply with the recommendation.

It’s Okay To Withhold Products From Customers If They’re ‘Loss Leader Selling’

Another example of ‘resale price maintenance’ is to withhold goods from a customer because they didn’t agree to a minimum resale price, or because they sold goods for less than that price.

But there’s an exception to this rule. Suppliers can cut off supply to a customer if they’re ‘loss leader selling’.

What is ‘loss leader selling’? It basically describes a process where a seller deliberately sells at a loss to gain a foothold in the market or to promote their business. Conduct like running a genuine clearance sale won’t constitute loss leader selling.

Do These Rules Apply To Resale Prices For Services?

Yes! While ‘resale price maintenance’ comes up more often in the context of selling goods, all the same rules apply in relation to services.

What To Take Away…

If you’re a supplier of goods or services, you need to be careful about your conduct towards customers to make sure you’re not engaging in ‘resale price maintenance’. You should also be careful about what it says in your agreements with customers, whether it be a Supply Agreement or a Distribution Agreement.

If you’re a customer who’s onselling goods or services, you should be aware that the prices you charge can’t be dictated to you by a supplier.

If you need a Supply Agreement or a Distribution Agreement drafted, we’re happy to help prepare one. Or maybe you’re a customer who’s had a Supply Agreement or Distribution Agreement proposed to you. We’d be happy to help with that too.

If you need help with anything like this, or if you have questions about minimum resale prices or recommended retail prices, drop us a line at team@sprintlaw.com.au!

Esha Kumar

Esha is a law graduate at Sprintlaw from the University of Sydney. She has gained experience in public relations, boutique law firms and different roles at Sprintlaw to channel her passion for helping businesses get their legals sorted.

Tomoyuki Hachigo

Tomo is the co-founder of Sprintlaw and a commercial lawyer with a broad range of legal experience. Before starting Sprintlaw, he was an M&A lawyer at a top-tier law firm advising businesses of all sizes from large corporates to startups.